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Sound Bites Those Who Heed Them

Dress Barn (DBRN), an evolving apparel retailer, has enhanced its fashion content and beefed up its marketing efforts. Comparable same-store growth is accelerating and with the acquisition of Maurice's the company has added another complementary brand to the fold. I expect improving comps and healthy accretion from the deal to drive valuation ratios higher than the current levels of 11 times projected cash earnings.

WebMethods (WEBM) is a newer name to the portfolio as well. This small-cap company has a leading position in the enterprise application integration software and services business. The enterprise software business seems to be improving after an ugly March quarter and WebMethods has a major product upgrade cycle ahead. With 60% of the stock value in net cash, the software business is priced extremely cheaply at 80% of revenue. If the new product cycle and accelerating growth in licensing revenue does not lead to acceptable profitability, another software management team might give it a try.

Finally, my leading "value concept" stock remains Applied Neurosolutions (APNS). The shares of this microcap have risen solidly since I mentioned them earlier this year. But this development stage biotechnology company has made meaningful progress on its Alzheimer's test. The company has also revealed the existence of a very early stage but promising drug to treat the same disease. The market cap is tiny so be careful. But that's precisely its appeal: a micro-cap price on a potentially large profit stream.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Applie Neurosolutions and Webmethods to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Marcin was long St. Paul's Travelers, Dress Barn, WebMethods and Applied Neurosolutions, although positions may change at any time.

Robert Marcin is the founder and general partner of Defiance Asset Management. Formerly, Marcin was a partner at Miller, Anderson & Sherrerd and a managing director at Morgan Stanley, where he managed the MAS Value fund (currently Morgan Stanley Institutional Value). Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Marcin appreciates your feedback; click here to send him an email.

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